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Chapter 07 Testbank
Student: ___________________________________________________________________________
1. Which distribution is a list of the possible dollar returns from the investment together with the probability of each
return?
A. Normal distribution.
B. Probability distribution.
C. Both Normal distribution and Probability distribution.
D. utility function.
2. Variance is best defined as:
A. difference of opinion in expected returns.

B. the mean of the squared deviations from the expected value.
C. the median difference between the most probable outcome and least probable outcome.
D. the difference between the expected return and the actual return.
3. Which distribution can be fully described by its expected value and standard deviation?
D. None of the given options.
4. Which investor attaches decreasing utility to each increment in wealth?
A. A risk-seeking investor.
B. A risk-neutral investor.
C. A risk-averse investor.
D. All of the given options.
5. Which investor attaches equal utility to each increment in wealth?
B. A risk-averse investor.
C. A well diversified investor.
D. A risk-neutral investor.
6. An investor's preferences regarding expected return and risk can be illustrated using:
A. yield curves.
B. a normal distribution.
C. indifference curves.
D. an efficient portfolio.
7. Which investor has a positive attitude towards expected return and a negative attitude towards risk?
A. A risk-averse investor.
C. A risk-seeking investor.
D. A well-diversified investor.
8. Portfolio theory was initially developed by:
A. Fama (1970).
B. Markowitz (1952).
C. Modigliani and Miller (1958).
D. Sharpe (1950).
9. Assume two securities A and B. The correlation coefficient between these two securities can be written as:
A.
B.
C.
D.
10. Which type of risk is unique to a firm and may be eliminated by diversification?
A. Macro risk.
B. Unsystematic risk.
C. Systematic risk.
D. Total risk.
11. Which statement best describes the market portfolio?
A. Portfolio of all traded assets in the universe.

B. Portfolio of all assets weighted according to their market capitalisation.
C. Portfolio of all risky assets weighted according to their value.
D. Portfolio of all risky assets weighted according to their market capitalisation.
12. The capital market line:
A. describes the equilibrium risk-return relationship for efficient portfolios.

B. describes the equilibrium risk-return relationship for all portfolios.
C. describes the equilibrium risk-return relationship for riskless portfolios.
D. describes the equilibrium risk-return relationship for risky portfolios.
13. A security market line:
A. explains the co-variance between the returns on the risky asset and the market portfolio.
B. explains the co-variance between the returns on the risky asset and a riskless asset.
C. is a graphical representation of the CAPM.
D. is a graphical representation of the CML.
14. Examine the following probability distribution:
The expected value from this is:
A. $3500
B. $4000
C. $3000
D. $2500
The range and standard deviation of the distribution are:
A. $4000 and $1095.45, respectively.

B. $1095.45 and $4000, respectively.
C. $5000 and $1095.45, respectively.
D. $4000 and $2000, respectively.
The mean, range and standard deviation are:
A. 0.06, 0.10 and 0.0693, respectively.

B. 0.06, 0.08 and 0.0693, respectively.
C. 0.06, 0.08 and 0.022, respectively.
D. 0.07, 0.10 and 0.022, respectively.
17. It is often assumed that an investment's distribution of returns follows a normal distribution because:
A. investment distributions are not usually bell shaped.

B. the expected value is the weighted average expected return from an investment.
C. the expected value gives a measurement of risk.
D. it enables an investment to be described by its expected value and standard deviation.
18. What would be the shape of the probability distribution for completely certain returns?
A. A vertical line.
B. Bell shaped but with a high peak.
C. A horizontal line.
D. Two or more vertical lines.
19. What would be the shape of the probability distribution for completely uncertain returns?
A. Horizontal line above the x axis.

B. Vertical line.
C. Horizontal line along the x axis.
D. Bell-shaped but very flat.
20. Which statement best describes the attitude of investors towards risk?
A. Investors may behave as though they are risk seekers for small investments.
B. Investors behave as though they are risk averse for investments of significant size.
C. For a risk-averse investor, the standard deviation of the return distribution is a relevant measure of risk.
D. All of the given answers.
21. The benefit of diversification to an investor is the reduction of:
A. brokerage costs.
B. brokerage costs and risk.
C. risk.
D. research time.
22. Which of the following statements is true?
A. Two assets that are perfectly negatively correlated can produce a portfolio with zero variance.
B. Adding an asset to a portfolio by random selection will reduce the risk of a portfolio.
C. Adding a riskless security to a portfolio will increase its overall risk.
D. The amount of risk reduction that can be achieved by adding a new security to an existing portfolio increases as
the correlation between the expected returns of the new security and the expected returns on the existing portfolio
increases.
23. Which of the following investments does a rational investor prefer?
A. Investment A: E(R) = 10%, = 3%

B. Investment B: E(R) = 10%, = 5%
C. Investment C: E(R) = 11%, = 3%
D. None of the given options, as a rational investor would require more information from which to make a decision.
24. Suppose that the returns on an investment are normally distributed with an expected return of 8% and standard
deviation of 4%. What is the likelihood of making a negative return? (Hint: the area under a curve for 1 std dev is
34.13%, 2 std dev is 47.73% and 3 std dev is 49.87%).
A. 47.73%
B. 34.13%
C. 15.87%
D. 2.27%
deviation of 5%. What is the likelihood of making a positive return? (Hint: the area under a curve for 1 std dev is
34.13%, 2 std dev is 47.73% and 3 std dev is 49.87%.)
A. 84.13%
B. 2.27%
C. 97.73%
D. 15.87%
deviation of 3%. What is the likelihood of receiving a return that is equal to or less than 19%? (Hint: the area under a
curve for 1 std dev is 34.13%, 2 std dev is 47.73% and 3 std dev is 49.87%.)
A. 97.73%
B. 84.13%
C. 15.87%
D. 2.27%
27. Suppose you have the choice between two investments – one that pays fixed interest of 4% p.a., and another whose
returns are normally distributed with an expected return of 10% and standard deviation of 3%. What is the likelihood
of receiving a return on the second investment that is equal to or greater than that which can be received from the
first investment? (Hint: the area under a curve for 1 std dev is 34.13%, 2 std dev is 47.73% and 3 std dev is
49.87%.)
A. 97.73%
B. 84.13%
C. 65.87%
D. 52.27%
28. A risk-averse investor attaches:
A. increasing utility to each increment in wealth.

B. decreasing utility to each increment in wealth.
C. increasing utility to each increment in risk.
D. no utility to each increment in risk.
29. A risk-neutral investor attaches:

B. decreasing utility to each increment in wealth.
C. decreasing utility to each increment in risk.
D. equal utility to each increment in wealth.
30. A risk-seeking investor attaches:

B. increasing utility to each decrement in risk.
C. decreasing utility to each increment in risk.
D. decreasing utility to each increment in wealth.
31. Which of the following two investments would a risk seeker choose: Investment A with an expected outcome of
$1000 and standard deviation of $500, or Investment B with an expected outcome of $1000 and standard deviation
of $200?
A. Investment A because if Investment B is chosen the expected utility from the increase in spread of expected
returns below $1000 outweighs the expected utility from the increase in spread of expected returns above $1000.
B. Investment A because it offers the chance of more wealth.
C. Investment A because the downside risk is greater.
D. Investment B because the downside risk is less.
32. Risk aversion implies that:
A. an investor will prefer a higher expected return than a lower expected return.
B. an investor will refuse to bear any risk at all.
C. an investor will tolerate extra risk if it is expected that the return will compensate them for bearing it.
D. an investor will be indifferent to the level of risk providing that the expected return is identical.
33. Two important assumptions of portfolio theory are:
A. returns from investments are normally distributed and investors seek to minimise transaction costs.
B. returns from investments are normally distributed and investors are risk averse.
C. returns on a portfolio are normally distributed and investors are risk averse.
D. the standard deviation of returns on a portfolio is normally distributed and investors are risk averse.
34. Calculate the expected return from a portfolio consisting of three securities with the following expected returns and
weights:
A. 0.114%
B. 12%
C. 11.4%
D. 36%
35. The variance of a portfolio does not depend on:
A. the proportion of the current market value of the portfolio constituted by each security.
B. the variance of the possible returns of each security.
C. the total market value of the portfolio.
D. the correlation between possible returns on the securities held in the portfolio.
36. An ‘efficient' portfolio is one that:
A. combines assets whose returns are not perfectly correlated.

B. offers the highest expected return for a given level of risk.
C. holds a proportion of all possible assets.
D. combines many diverse assets.
37. Increasing the amount of wealth in Asset A whilst maintaining the entire wealth invested in a portfolio consisting of
two assets only, A and B (assume that the expected return and standard deviation of both assets are A: 0.10 and
0.03, and B: 0.15 and 0.05, respectively):
A. will increase the expected return of the portfolio.

B. may reduce the variance of the portfolio regardless of the correlation coefficient between Assets A and B.
C. will decrease the expected return of the portfolio, but the expected return will be closer to 15% than before.
D. will decrease the expected return of the portfolio, but the expected return will still be greater than if the portfolio
consisted of Asset A only.
38. The efficient frontier:
A. includes those portfolios that offer the maximum expected return for a given level of risk.
B. combines those assets in a portfolio that offer the highest expected return for a given level of risk.
C. includes the portfolio of all possible assets.
D. combines portfolios that offer the maximum level of expected return for a given amount of wealth invested.
39. According to portfolio theory, which of the following assumptions is not essential to the equilibrium pricing of risky
assets?
A. All investors have the same estimate of expected returns and variance of expected returns on each asset.
B. All investors have a common single-period time horizon for investment decisions.
C. All assets are traded in perfect markets.
D. All investors can sell short assets (sell an asset first and then purchase later).
40. Systematic risk represents:
A. diversifiable risk.
B. risk that is unavoidable.
C. risk that is diversifiable.
D. none of the options given.
41. Which of the following is not an example of unsystematic risk?
A. Changes in the level of interest rates.

B. The chief executive officer resigns.
C. A legal suit against a company for environmental pollution.
D. The development of a new product line.
42. What is the expected return on an asset with a beta of 2.0, if the risk-free rate of interest is 5% and the expected
return on the market portfolio is 10%?
A. 12.5%
B. 20%
C. 10%
D. 15%
43. Beta is a measure of the extent to which:
A. the returns on the stock market as a whole change over time.

B. a security's risk can be eliminated by proper diversification.
C. the returns on a given stock move with the stock market.
D. a security's risk can be eliminated by random diversification.
44. From the following information, calculate the expected return and standard deviation of a portfolio that consists of
60% of Security A (expected return of 0.10 and standard deviation of 0.03) and 40% of Security B (expected return of
0.20 and standard deviation of 0.05), assuming the co-variance between A and B is -0.0012.
A. E(R) = 0.152, σ = 0.161

B. E(R) = 0.138, σ = 0.012
C. E(R) = 0.14, σ = 0.085
D. E(R) = 0.14, σ = 0.012
45. The relationship between the required rate of return for a security and market risk is:
A. non-linear.
B. linear.
C. denoted by the capital market line.
D. concave.
46. The straight line passing through the risk-free rate of return on the vertical axis and the expected return–standard
deviation point for the market portfolio is known as the:
A. security market line.

B. capital market line.
C. characteristic line.
D. efficient frontier.
47. Which of the following is typically used in empirical studies as a proxy for the market portfolio?
A. Consumer price index.

B. All Ordinaries Accumulation Index.
C. Treasury notes.
D. GDP.
48. A popular measure of risk in corporate finance called the value at risk (VaR), which is defined as:
A. the best return from a high risk investment.

B. the worst loss that is possible under normal market conditions.
C. the worst possible loss under any market conditions.
D. the worst return from a low risk investment.
49. The Fama–French three-factor model of expected returns includes the following three factors:
A. the market risk premium, the size of firms and the risk free rate.
B. the risk free rate, the market risk premium and price earnings ratios.
C. the market risk premium, the size of firms and book-to-market ratios.
D. the market risk premium, the risk free rate and book-to-market ratios.
50. After adjusting for risk, the returns to a portfolio can differ from the benchmark portfolio as a result of:
A. asset allocation.
B. market timing.
C. random events.
D. all of the given answers.
51. An investor would like to evaluate the performance of her portfolio using the Sharpe ratio. The past year realised
return and standard deviation of returns of the portfolio, the benchmark portfolio, given by the S&P/ASX share price
index, and government bonds are:
Has the portfolio:
A. underperformed relative to the benchmark.

B. outperformed the market benchmark on a risk-adjusted basis.
C. underperformed the market benchmark on a risk-adjusted basis.
D. outperformed the Government Bonds.
52. An investor would like to evaluate the performance of her portfolio using the Treynor ratio. The past year realised
return and systematic risk of the portfolio, the benchmark portfolio, given by the S&P/ASX share price index, and
government bonds are:
Has the portfolio:
A. underperformed relative to the benchmark.

B. outperformed the market benchmark on a risk-adjusted basis.
C. underperformed the market benchmark on a risk-adjusted basis.
D. outperformed the Government Bonds.
53. Which of the following is NOT a portfolio performance measure?
A. Jensen's beta.
B. The Sharpe ratio.
C. The Treynor Ratio.
D. Jenson's alpha.
54. Mehra and Prescott (1985) showed that a long-term risk premium such as that found in the US, Canada, the UK and
Australia:
A. exceeds 3% p.a.
B. does not exceed 3% p.a.
C. can be explained by standard models of risk and return.
D. cannot be explained by standard models of risk and return.
55. Claus and Thomas (2001) use forecasts by security analysts and conclude that the market risk premium is
approximately:
A. 2% p.a.
B. 3% p.a.
C. 4% p.a.
D. 1% p.a.
56. Fama and French (2002) use the dividend growth model and conclude that the market risk premium is now of the
order of:
A. 2% p.a.
B. 1% p.a.
C. 3% p.a.
D. 5.5% p.a.
57. Standard deviation is measured as the _______________ of variance.
________________________________________
58. A risk __________ investor will make their investment decision purely on the return generated by a project.
________________________________________
59. The _____________________ plots the relationship between the expected return and beta of a security.
________________________________________
60. The _______________ is a curve that includes all portfolios with the highest return for a given level of risk.
________________________________________
61. The Fama–French three-factor model of asset pricing attempted to improve the CAPM by integrating variables that
measured a firm's size and its ___________________.
________________________________________
62. In order to benchmark the performance of a portfolio it is important to compare it to a portfolio of

___________________.
________________________________________
63. Where two securities are perfectly positively correlated, there is no reduction in unsystematic risk through
diversification.
True False
64. The typical utility-to-wealth function for a risk-seeking investor is upward sloping.
True False
65. Portfolio theory, as initially developed by Markowitz (1952), assumes that the returns from investments are normally
distributed.
True False
66. A well-diversified portfolio should have a beta significantly less than one.
True False
67. The Capital Asset Pricing Model (CAPM) assumes that all securities are priced according to their unsystematic risk.
True False
68. Beta is calculated by finding the co-variance between the return on the asset and the return on the market and
dividing it by the variance of the return on the market.
True False
69. If an asset has a beta of 0.8, this indicates that the expected return of the asset should be greater than the market
portfolio.
True False
70. The Fama–French three-factor model of expected returns indicates a linear relationship according to the size of the
firm and book-to-market ratios.
True False
71. A simple performance benchmark is to compare the return of a well diversified portfolio of domestic shares to the
S&P/ASX200 Index.
True False
72. Explain the difference between systematic and unsystematic risk.
73. What are the two components of expected return in the CAPM?
74. Explain the key differences between the Capital Market Line and the Security Market Line.
75. An investor would like to evaluate the performance of her portfolio using the Treynor ratio. The past year realised
return and systematic risk of the portfolio, the benchmark portfolio, given by the S&P/ASX share price index, and
government bonds are:
Has the portfolio:
76. You are considering investing in ZIN mining corp. Research into the company suggests that the company will
achieve one of three possible returns over the next 12 months. The possible returns along with the probability of
each are listed in the following table.
a. What is the expected return of ZIN?

b. What is the standard deviation of returns of ZIN?
You also consider the stock WMC, which has an expected return of 15% and a standard deviation of 4%. If you
create a portfolio with 60% weight on ZIN and 40% WMC and the correlation coefficient is 0.8, then:
c. What is the expected return of this portfolio?
d. What is the risk of the portfolio?
Chapter 07 Testbank Key
1. Which distribution is a list of the possible dollar returns from the investment together with the probability of each
return?
D. utility function.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
EQUIS: Apply knowledge
Graduate Attributes: Problem-solving
Learning Objective: 07-01 Understand how return and risk are defined and measured
Section: 7.2 Return and risk
2. Variance is best defined as:
A. difference of opinion in expected returns.

B. the mean of the squared deviations from the expected value.
C. the median difference between the most probable outcome and least probable outcome.
D. the difference between the expected return and the actual return.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
3. Which distribution can be fully described by its expected value and standard deviation?
D. None of the given options.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
4. Which investor attaches decreasing utility to each increment in wealth?
C. A risk-averse investor.
D. All of the given options.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 07-02 Understand the concept of risk aversion by investors
Section: 7.3 The investor's utility function
5. Which investor attaches equal utility to each increment in wealth?
B. A risk-averse investor.
C. A well diversified investor.
D. A risk-neutral investor.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
6. An investor's preferences regarding expected return and risk can be illustrated using:
A. yield curves.
B. a normal distribution.
C. indifference curves.
D. an efficient portfolio.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
7. Which investor has a positive attitude towards expected return and a negative attitude towards risk?
A. A risk-averse investor.
C. A risk-seeking investor.
D. A well-diversified investor.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
8. Portfolio theory was initially developed by:
A. Fama (1970).
B. Markowitz (1952).
C. Modigliani and Miller (1958).
D. Sharpe (1950).
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 07-03 Explain how diversification reduces risk
Section: 7.5 Portfolio theory and diversification
9. Assume two securities A and B. The correlation coefficient between these two securities can be written as:
A.
B.
C.
D.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 07-04 explain the concept of efficient portfolios
10. Which type of risk is unique to a firm and may be eliminated by diversification?
A. Macro risk.
B. Unsystematic risk.
C. Systematic risk.
D. Total risk.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 07-03 Explain how diversification reduces risk
11. Which statement best describes the market portfolio?
A. Portfolio of all traded assets in the universe.

B. Portfolio of all assets weighted according to their market capitalisation.
C. Portfolio of all risky assets weighted according to their value.
D. Portfolio of all risky assets weighted according to their market capitalisation.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 07-08 Explain the relationship between returns and risk proposed by the capital asset pricing model
Section: 7.6 The pricing of risky assets
12. The capital market line:
A. describes the equilibrium risk-return relationship for efficient portfolios.

B. describes the equilibrium risk-return relationship for all portfolios.
C. describes the equilibrium risk-return relationship for riskless portfolios.
D. describes the equilibrium risk-return relationship for risky portfolios.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 07-07 explain why systematic risk is important to investors
13. A security market line:
A. explains the co-variance between the returns on the risky asset and the market portfolio.
B. explains the co-variance between the returns on the risky asset and a riskless asset.
C. is a graphical representation of the CAPM.
D. is a graphical representation of the CML.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 07-08 Explain the relationship between returns and risk proposed by the capital asset pricing model
The expected value from this is:
A. $3500
B. $4000
C. $3000
D. $2500
AACSB: Analytic
Blooms: Application
Difficulty: Medium
The range and standard deviation of the distribution are:
A. $4000 and $1095.45, respectively.

B. $1095.45 and $4000, respectively.
C. $5000 and $1095.45, respectively.
D. $4000 and $2000, respectively.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Hard
The mean, range and standard deviation are:
A. 0.06, 0.10 and 0.0693, respectively.

B. 0.06, 0.08 and 0.0693, respectively.
C. 0.06, 0.08 and 0.022, respectively.
D. 0.07, 0.10 and 0.022, respectively.
AACSB: Analytic
Blooms: Application
Difficulty: Hard
17. It is often assumed that an investment's distribution of returns follows a normal distribution because:
A. investment distributions are not usually bell shaped.

B. the expected value is the weighted average expected return from an investment.
C. the expected value gives a measurement of risk.
D. it enables an investment to be described by its expected value and standard deviation.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Medium
18. What would be the shape of the probability distribution for completely certain returns?
A. A vertical line.
B. Bell shaped but with a high peak.
C. A horizontal line.
D. Two or more vertical lines.
AACSB: Analytic
Blooms: Knowledge
Difficulty: Easy
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Your affectionate friend and ready servant for Christ’s
sake,
G. W.
LETTER MCXXXVII.
To Mr. J―― R――.
Bristol, May 21, 1756.
My dear Sir,
T HIS morning, (which is the first leisure time I have had since my
leaving town) looking over my letters, I found one from you,
who I suppose to be the person whom I have taken notice of at
Long-Acre chapel. As your behaviour there, and your letter before
me, bespeak you to be in earnest about your soul, you will be quite
welcome to come to my house; and if God should vouchsafe to
bless any thing that I may drop for the furtherance of your faith, to
him and him alone be all the glory. I desire to bless him for what he
hath already done. O amazing mercy! to be translated from the
kingdom of darkness into the kingdom of God’s dear Son; to be
brought from the swine’s trough to feed upon the fatted calf; what a
heaven upon earth is this! Be not discouraged, though you are
obliged to fight every inch of your way. Jesus will pray for you, and
your faith shall not fail. He can and will enable you to overcome
yourself and the world. To his never-failing mercy do I most earnestly
commit you, as being, for his great name’s sake,
Your friend and servant,
G. W.
LETTER MCXXXVIII.
To the Reverend Mr. V――.
London, June 4, 1756.
Reverend and very dear Sir,
G LAD, yea very glad was I to hear by Mr. A――, that you grew
better and better every day. Surely your late sickness was only
to purge you, that you might bring forth more fruit unto God. Such
trying and threatening dispensations are glorious presages of future
usefulness. It is in the furnace, that both our gifts and graces are
purified and increased. How gradually doth our great,
compassionate, and all-wise High-priest train up his chosen ones for
the services appointed to them! Happy they that can eye his
providences, and with a disinterested spirit be ready to follow the
Lamb whithersoever he is pleased to lead them.
Through winds and clouds and storms,
He gently clears our way;
Wait we his time, so shall each night
Be turn’d to joyous day.
I rejoice in the prospect of your coming forth like gold that is tried.
May you increase though I decrease! Justly might my Master throw
me aside; but he is patient and long-suffering, and will send by
whom he will send. Since we parted, I have been led to several new
places. Travelling and preaching thrice a day was made delightful.
Blessed be God for my airy pluralities! O what am I, Lord, that I
should be sent into the highways and hedges!
All hail reproach, and welcome pain,
Only thy terrors, Lord, restrain!
These I cannot bear. A Father’s, a Saviour’s frowns are intolerable.

But what am I doing? Excuse this freedom, because it flows from
love. How does dear Mr. D――? How are the elect Ladies? If
possible I shall write to-night; if not, very soon. I am glad Miss G――
is in such a promising way. She nor any of our honoured friends are
forgotten in my poor prayers. If I should be prevented from writing,
be pleased to present my most dutiful respects, and accept most
cordial love and salutations from, my very dear Sir,
Yours most affectionately in our common Lord,
G. W.
LETTER MCXXXIX.
To Lady H――n.
Ever-honoured Madam,
M AN appoints, but God disappoints. In hopes of seeing your

Ladyship, I hastened to Bristol, but found your Ladyship had
been in London whilst I was there. Sorry was I for the occasion of
your Ladyship’s journey, and yet glad to hear that Master H―― was
so well recovered. At Bristol the Redeemer caused us to triumph,
and likewise in Gloucestershire, at Bradford, Frome, Warminster,
and at Portsmouth, whither I have been these three weeks last past.
I am now come up for about ten days to keep Pentecost; I trust it will
be a Pentecost to many souls at Long-Acre. Blessed be God, a new
building is now erecting at Tottenham-Court Road: Mr. J――
promises to assist me. We have consulted the Commons, about
putting it under your Ladyship’s protection. This is the answer: “No
nobleman can licence a chapel, or in any manner have one put in his
dwelling house; that the chapel must be a private one, and not with
doors to the street for any persons to resort to at pleasure, for then it
becomes a public one; that a chapel cannot be built and used as
such, without the consent of the parson of the parish, and when it is
done with his consent, no minister can preach therein, without
licence of the Bishop of the diocese.” There seems then to be but
one way,—to licence it as our other houses are: and thanks be to
Jesus for that liberty which we have. O that I could begin to work
while it is day. My God! half the year gone, and so little, yea very
little done for thee! I have need of being purged, that I may at length
bring forth some fruit unto God. Glory be to his great name, he doth
not say, “Let him alone.” Outward and inward trials frequently
surround me; but, by the help of my God, I shall leap over every
wall. I know your Ladyship will not forget to pray for me. My poor
prayers are always offered up for your Ladyship and honoured
family. That is the only pepper-corn of acknowledgment that can be
made by, ever-honoured Madam,
Your Ladyship’s most dutiful, obliged, and ready servant for

Christ’s sake,
G. W.
LETTER MCXL.
To Mr. G――.
My very dear Friend,

W HAT shall I say? Had I wings, how gladly would I fly to my dear
America? But alas! the glittering sword is now unsheathed,
and I fear it would not be proper for me to cross the water
now. However, all the provinces are continually upon my heart: night
and day do I remember them before God. Satan hath been angry
with me for appearing for my Jesus, my King, and my country. If you
examine the Gazette for the latter end of April, or beginning of May,
you will see what it hath produced. My life hath been threatened, but
we are immortal till our work is done. A new building is now erecting
at the other end of the town, the top-stone of which, I trust, will be
brought forth with shoutings, and we shall cry Grace! grace! People
are rather more eager than ever to hear the word. I remark what you
say about Georgia, and shall talk with Mr. D――. The good Lord
Jesus direct you in every step! What if you went and lived at
Bethesda, and took all my outward affairs upon your hands, and
furnished the family with all it wanted. Glad should I be of such a
steward, and of such a steward’s wife as I know dear Mrs. G――
would prove. Poor P―― hath served me as others before him have
done. God keep us from that prosperity which destroyeth! In all time
of our wealth, good Lord deliver us! Let me hear from you
concerning Bethesda. Watch and pray. I send most cordial respects
to you and yours, and all dear friends that are so kind to enquire
after, my very dear Sir,
G. W.
LETTER MCXLI.
To Lady H――n.

B EING just come off the bed, where I have been sweating for a
cold and cholic that had seized me this day, I met with your
Ladyship’s very kind and condescending letter. I see your Ladyship
is touched in a very tender point: generous minds are always thus
affected, when a friend is abused. But I find more and more,
honoured Madam, that our own mother’s children will be permitted to
be angry with one. The contradiction of saints, is more trying than
that of sinners:—but it is all to teach us to cease from man, and wrap
ourselves in Him, in whom alone dwells consummate perfection.
That I might say, “some of Mr. L――’s principles, in my opinion, are
wrong,” I do not deny; but that I put Mr. W――y upon writing, or had
any active hand in his pamphlet, is utterly false. I think it is a most
ungentleman-like, injudicious, unchristian piece. However, Mr. L――
knows too much of the divine life, not to see some call even in this
cross; and I hope your Ladyship will not suffer it to burden your mind
any longer. Satan wants to disturb your Ladyship’s repose. Ere long,
blessed be the glorious Emmanuel, he will be bruised under our feet.
This last week I have had some respite from his artful and perplexing
suggestions, and have been enabled to ride upon my high places.
My present work at London seems to be over, and Monday or
Tuesday next, God willing, I hope to set out for Bristol, where I
purpose preaching next Thursday. If divine Providence should not
direct your Ladyship thither, I have thought of coming through
Leicestershire, in my way to Scotland. This circuit, I hope, will be a
three months circuit. The prospect in London is very promising.
Every day we hear of fresh conquests. To thee, and thee alone, most
adorable Redeemer, be all the glory! Want of strength forbids my
enlarging. O this vile body! Surely our treasure is in earthly vessels.
When it is breaking to pieces, and the rattles are in my throat, I hope
with my latest breath to acknowledge the innumerable unmerited
favours which have been conferred by your Ladyship on, ever-
honoured Madam,

Christ’s sake,
G. W.
LETTER MCXLII.
To Mrs. C――.
Dear Mrs. C――,
N OTHING concerns me in your last letter, but your having the

least suspicion that I was not pleased with your conduct, or
was not satisfied with your being at Bethesda. I know of no person in
the world that I would prefer to you, neither had I ever one thought to
the contrary. I think myself happy in having such a mother for the
poor children, and am persuaded God will bless and own you more
and more. I pity poor Mr. P――, but doubt not of Bethesda’s being
well supplied. I think if Mr. R―― manages outward things, and Mr.
D―― takes the accounts, and keeps to the children, affairs may be
managed very well. I care not how much the family is lessened. As it
is a time of war, this may be done with great propriety, and then the
plantation will have time to grow. J―― H――y writes that you use
him quite well, and seems very contented. Never fear, my dear Mrs.
C――, Jesus will stand by a disinterested cause. I have aimed at
nothing in founding Bethesda, but his glory and the good of my
country. Let Lots then chuse the plain, God will be Abrahams’ shield
and exceeding great reward. All is well that ends well. Faith and
patience must be exercised by means of friends as well as by foes. I
hear that my nephew is married. Alas, what a changing world do we
live in! Blessed be God for an unchangeable Christ! Amidst all, this
is my comfort, his word runs and is glorified. A new building is now
erecting at the other end of the town, and many souls, I trust, are
daily built up in their most holy faith. To-morrow, God willing, I set out
upon a long range. Fain would I have all concerned with me to be
happy. Just now Mrs. F―― hath determined to come over and
marry H――. I have advised her to go with M――, and told her she
should be welcome to my house till she goes to Carolina. I know you
will receive her kindly. It is her own choice, and therefore she must
look to the consequences. The Lord give us all a right judgment in
all things. Near this time, I suppose, you know my mind about Mr.
D――. I have no objection, and your brothers are quite fond of the
match. Perhaps, take all together, it may be more agreeable than the
other. We seldom choose well, when we choose for ourselves.
God’s thoughts are not as our thoughts. Take courage, my dear Mrs.
C――; Bethesda’s welfare doth not depend on a single person. God
will provide: I think he hath already. I care not if all the boarders were
gone. Mr. R―― and D―― and you are hearty. Enough, enough!
God will bless and prosper you. I am more than contented. My
blessing to all the children. That the God of all grace and mercy may
fill you with all his fulness, is the earnest prayer of, dear Mrs. C――,
Your very affectionate, sincere friend, and ready servant for

Christ’s sake,
G. W.
LETTER MCXLIII.
To Mr. D――.
London, July 10, 1756.
My dear Mr. D――,
Y OUR letter gave me satisfaction. I read it on our Letter-day, and

you and the rest of my dear family had many prayers put up for
you. May they enter into the ears of the Lord of Sabaoth! Ere now, I
hope you have agreed upon what plan to act. I shall send no one
over. As I would have the family lessened as much as possible, you
that are left upon the spot will be sufficient. Debts may then be paid,
and the plantation brought into good order, by the time Providence
opens a door for my seeing America again. What think you of J――
P――? If not truly serious, I would not have him sent to the college.
Lord Jesus, do thou shew all concerned, what thou wouldst have
them to do! Surely Bethesda will be a house of mercy still. God
blesses my feeble labours here. Last night I came from Bristol. There
the word ran and was glorified. In a few days I set out for Scotland.
God continue my moving life, till I am moved at last to glory!
Continue to pray for me, and assure yourself of not being forgotten
by, my very dear Mr. D――,
Yours most affectionately, &c.
G. W.
LETTER MCXLIV.
To Lady H――n.
London, July 17, 1756.
Y OUR Ladyship’s kind letter found me just returned from Bristol,

and just setting out for Maidstone and Chatham, where I have
been to preach the gospel, and to visit a poor murderer. I hope that
my poor feeble labours were not altogether in vain in the Lord. A
divine influence accompanies the word preached here, and I am now
preparing for my northern expedition. If your Ladyship removes not
from Donnington soon, perhaps I may have the honour of waiting
upon your Ladyship there. My motions must be very quick, because I
would hasten to Scotland as fast as possible, to have more time at
my return. Eternity! eternity! O how do I long for thee! But alas, how
often must we be like pelicans in the wilderness, before we arrive
there? Solitariness prepares for the social life, and the social life for
solitariness again. Thus doth an all-wise Redeemer set one over
against another. Jesus is the alone center of peace and comfort in
either situation. Your Ladyship knows this by happy experience.
Perhaps our consolations come sweetest, when immediately derived
from the fountain head. Springs fail, the fountain never can nor will.
That your Ladyship may every moment be refreshed with its living
waters, is and shall be the earnest prayer of, ever-honoured Madam,
Your Ladyship’s most dutiful, obliged, and ready servant,
G. W.
LETTER MCXLV.
To Mrs. C――.
Islington, July 27, 1756.
Dear Mrs. C――,
S INCE my last, which I believe is not yet gone, I have given an

order to have Mr. R――’s children delivered to him or his
mother, or whomsoever they shall appoint: and pray lessen the
family as much as possible. I wish I had none in the house, but what
were proper orphans. The plantation would then suffice for its
support, and debts be paid: but we must buy our experience.
Troubles seem to beset us here: but we are all secure in God, even
in a God in Christ. His gospel flourishes in London. I am just
returned from preaching it at Sheerness, Chatham, and in the camp.
This afternoon or to-morrow I set off for Scotland. I can only add, that
with continual prayers for your temporal and spiritual welfare, I am,
dear Mrs. C――,
Your most affectionate, obliged friend, and ready servant for
Christ’s sake,
G. W.
P. S. My hearty love to all. The Lord be with you! Amen, and

Amen!
LETTER MCXLVI.
To Mr. Z――.
Sunderland, August 14, 1756.
Honoured and very dear Sir,
H OW swiftly doth my precious time fly away! It is now a fortnight

since I came to Leeds in Yorkshire, where the gospel had
indeed free course, did run, and was glorified. On the Sunday
evening, a few hours after my arrival, many thousands were
gathered in the fields, to whom, I trust, Jesus enabled me to speak
with some degree of power. The following week I preached in and
about Leeds, thrice almost every day, to thronged and affected
auditories; and on Sunday last the fields were indeed white ready
unto harvest. At Bradford, about seven in the morning, the auditory
consisted of about ten thousand; at noon, and in the evening at
Burstall, to near double the number. Though hoarse, the Redeemer
helped me to speak, so that all heard. Upon every account it was a
high-day. In the evening several hundreds of us rode about eight
miles, singing and praising God. Indeed it was a night much to be
remembered. The next morning I took a sorrowful leave of Leeds,
preached at Tadcaster at noon, and at York the same night. God
was with us. On Tuesday I preached twice at York (delightful
seasons!); on Wednesday at Warstall, about fifty miles off; on
Thursday twice at Yarm, and last night and this morning here. All the
way I have heard of a great concern since I was in these parts last
year, and of many glorious trophies of the power of redeeming love.
In heaven, honoured Sir, you will know all. There I shall throw my
crown before the Lamb, and there you shall be rewarded for
strengthening the hands of the most unworthy creature that ever was
employed by God. After spending my sabbath here, and visiting
Shields, Newcastle, and some adjacent places, I purpose to go on to
Scotland. From thence I hope to have the honour of writing to you
again. This is the first time I have had a proper opportunity of
refreshing myself in that way. Praying that you may increase with all
the increase of God, and begging your acceptance of repeated
thanks for repeated unmerited favours, I subscribe myself, honoured
and very dear Sir,
Your most dutiful, though most unworthy son in the glorious

gospel,
G. W.
LETTER MCXLVII.
To the Reverend Mr. T――.
Edinburgh, September 9, 1756.
G LAD, yea very glad should I have been to have waited upon you
at C――. But it seems it was not to be. However, if I should
return from Glasgow, God willing, I shall call upon you; if not, in
heaven, in heaven we shall meet. God be with you and yours! I am
just going off. O these partings! they are cutting. I trust Jesus hath
been walking amidst the golden candlesticks. You will hear
particulars from others. I have only time to beg the continuance of
your prayers, and with hearty love to your yoke-fellow, Mr. C――,
and his spouse, to subscribe myself, my very dear friend,
G. W.
LETTER MCXLVIII.
To the Reverend Mr. G――.
Edinburgh, September 21, 1756.
Reverend and very dear Sir,
I THANK you most heartily for your kind letter, and for all other
tokens of your regard and love. I can only send you a pepper-
corn of acknowledgment. My Master, my long-suffering, ever-loving,
ever-lovely Master, will pay you all. I hope he hath directed my steps.
On Saturday I received a message from our new Governor of
Georgia, desiring to see and converse with me, before he embarks.
This could not have been done, if I had went to Ireland now. Our
Lord orders all things well. O remember me before his throne. To-
morrow I leave Edinburgh. Your letter shall be delivered to Mr.
R――. Be pleased to give the inclosed to Mr. Scot, to put in his
Philadelphia-Packet. I am busy, and yet, alas! I do nothing.
Impressions seem to be promising here. Lord, what am I? less than
the least of all, but for Christ’s sake, my very dear friend,
Yours indissolubly in the best bonds,
G. W.
LETTER MCXLIX.
To Lady H――n.
London, October 27, 1756.
H OPING that they would find your Ladyship at Bristol, I wrote a

few lines not long ago from Leeds. Since that I have been in
honest Mr. G―― and Mr. J――’s round, preaching upon the
mountains to many thousands. One that was awakened three years
ago, is gone to heaven, and desired to be buried upon the spot
where she was awakened. The sacrament at Mr. G――’s was most
awful, and the Welch night at Leeds exceeding solemn. I would have
continued my circuit, but found that preaching so frequently in those
cold countries, was bringing on my last year’s disorder. Being
therefore grown very prudent, I am come to open our new chapel in
Tottenham-Court Road, and in my poor way to recommend the ever-
loving, ever-lovely Jesus. Lord, what am I, that thou shouldest
suffer me to put a pin in thy tabernacle! O for grace to stand in a
trying hour. Something very extraordinary lies before us: “Prepare to
meet thy God,” seems now to be the call to all. Blessed be God, his
Spirit hath not done striving for us. This, I hope, is a token for good.
Never did I know the fields more ready unto harvest, than I have
seen them in the North. May I wish your Ladyship joy of what hath
happened at the other end of the town. May his Lordship be made a
long and public blessing to this sinful nation! If the other elect Ladies
are all at Clifton court, I wish you all the blessings of the everlasting
gospel. Though utterly unworthy of such an honour, offering my poor
pepper-corn of acknowledgment for all your Ladyship’s unmerited
kindnesses, I beg leave to subscribe myself, ever-honoured Madam,

Christ’s sake,
G. W.
LETTER MCL.
To Mrs. C――.
London, October 30, 1756.
Dear Mrs. C――,
I CAN only drop you a few lines. I am just returned from a thousand
miles northern circuit, and Mr. Graham is just a going. All your
relations are well. The fields have been white ready unto harvest. In
about a week, a new building at the other end of the town is to be
opened. I expect to see your new Governor every moment. By his
ship I hope to send letters to you all. May God bless and prosper
you! J―― H――’s relations are well. You will give him all the
encouragement you can. I am still for lessening the family as much
as possible. My wife wrote lately. I have scarce time to subscribe
myself, dear Mrs. C――,
Your most affectionate, obliged, and ready servant for

Christ’s sake,
G. W.
LETTER MCLI.
To Alderman H――.
London, November 6, 1756.
My dear Friend,
I AM glad you got no more hurt by your late fall from your horse. May
the Lord Jesus write the laws of gratitude upon all our hearts! I
wish my brother’s sickness may be sanctified to his better part. I know
not the case of the poor weavers: I do not love to fish in troubled
waters, and yet I fear more and more troubles await us both at home
and abroad. O that the walls and street of the New Jerusalem, may be
built in troublesome times! He hath said it, who is also able to perform
it. I wish I may begin to begin to build in earnest. Do pray for me: I shall
never forget you or yours. May this find you on the full stretch for
Jesus! He was stretched upon the cross for you and me. Amazing love!
Adieu. I must away. Beg Mr. B―― to write if my brother grows worse. I
will answer him as soon as possible; but whilst my cold continues, I
cannot expect to see you at Gloucester. O for a warm heaven! there
you will know how much I am, my very dear Friend,
Yours in our common Lord,
G. W.
LETTER MCLII.
To Mr. D――.

My dear Mr. D――,
I HAVE just been with your new Governor, who sets out to-morrow.
May the Lord of all lords make him a blessing! Upon the receipt of
this, do you wait upon his Excellency, and give Him, and whom he
pleases to bring with him, an invitation to Bethesda. I know dear Mrs.
C―― will make proper provision. I have had no letters for a long
season. I have only time to inform you, that we have just opened a new
chapel at Tottenham-Court Road, and that I trust the Redeemer’s glory
filled it last Sunday. Have you persons enough to exercise before the
Governor? Can they receive him under arms? That the Captain of our
salvation may make them all good soldiers for himself, is the earnest
prayer of, my dear Mr. D――,
Yours, &c. in our common Lord,
G. W.
LETTER MCLIII.
To Lady ――.
Honoured Madam,
A S I thought it would give your Ladyship satisfaction, I herein inclose

the copies of two letters sent from the condemned youth, in
whose behalf your Ladyship hath interposed. May the Redeemer crown
your endeavours with success! Blessed be his name, we hear of daily
instances of his grace! At Long-Acre indeed the word ran, and at
Tottenham-Court chapel we have had some glorious earnests of future
blessings. Providence, I doubt not, will enable us to pray for it. My
constant work now is, preaching about fifteen times a week. This, with
a weak appetite, want of rest, and much care lying upon my mind,
enfeebles my too, too feeble nature. But the joy of the Lord is my
strength. And my greatest grief is, that I can do no more for Him, who
hath done and suffered so much for me. I thank your Ladyship for your
kind letter and good wishes. Indeed, honoured Madam, you are always
remembered at the throne of grace. That your Ladyship’s soul may
always prosper, and that you may increase with all the increase of
God, is and shall be the earnest prayer of, honoured Madam,

Christ’s sake,
G. W.
LETTER MCLIV.
To Mr. H――y.
London, December 9, 1756.
L AST night Mr. M―― informed me, that Mr. C―― shewed him a
pamphlet, wrote on purpose to prove the fundamental errors of my
printed sermons, and that you had offered to preface it, but he chose
you should not. That this is true, I as much believe, as that I am now at
Rome. But I wish that my very dear friend may not repent his
connection and correspondence with some, when it is too late. This is
my comfort, I have delivered my soul. Mr. R―― hath been so kind as
to send me the two volumes of Jenks’s Meditations, and desires me to
annex my recommendation to yours. I have answered, that it will not be
prudent or beneficial to him so to do. I fear they are too large to go off. I
hope that my dear friend prospers both in soul and body. Conviction
and conversion work go on here. Lord keep us from tares! All is well at
Clapham; I have expounded there twice. God hath met us at our new
building. I know that you will pray, it may be full of new creatures. My
most cordial respects await your mother and sister; my wife joins. With
great haste, but much greater love, I subscribe myself, my very dear
friend,
G. W.
LETTER MCLV.
To Mr. Aaron B――.
A S I am informed the Philadelphia packet sails this day, I cannot

omit acknowledging the receipt of Mr. P――’s paper: the
duplicates came to hand before. A memorial is drawn up by proper
persons, and application is to be made for a charter. As yet, every thing
promises well. This morning I am going to send P――’s writing to
those, who I believe will put it into his Majesty’s hands. The letters
mentioned by Mr. B――, about purchasing the land for the Indians, I
did not receive, but I shall take the hint in the last, and do what I can.
Alas! that is but little. Some books shall be secured for John O――,
and some bibles, &c. for the Indian school. I wish John O―― of Long-
Island was here, especially if he can preach, and could be spared from
his mission for a few months, and his passage paid. I would pay his
passage back again, and I hope get something for that which you have
in view. At the ensuing fast, it practicable, I intend making a collection.
Night and day, our hands are lifted up for dear America. I fear we are to
be brought into far greater extremity, both at home and abroad, ere
deliverance comes. The Lord reigneth, and blessed be the God of our
salvation. I am sorry you have not your degree. It is ready, if
testimonials were sent from those that know you. This not being done,
it looks as though the character given you on this side the water, was
not justly founded. The Lord Jesus direct and bless you! I wish you
would write oftener. How glad would I be to see America, but my way is
hedged up. We have just opened a new chapel at the other end of the
town, and the awakening both in town and country continues. We have
many pleasing accounts from various quarters, and more ministers are
coming out to preach the gospel. This is refreshing. How does the
worthy Governor? I cannot write now, but I pray. Dear Captain G―― is
gone: O that my turn was come! Jesus is kind. I am strengthened to
preach fourteen times a week, and I trust it is not in vain. You have
work enough. That the giver of all strength may support and succeed
you more and more, is the earnest prayer of, dear Sir,
Yours most affectionately in our glorious Head,
G. W.
LETTER MCLVI.
To Mrs. G――.
Dear Madam,
W HAT a prayer-hearing, promise-keeping God do we serve! O that

I had a heart to bless and praise him! Your kind and opportune
contribution for the new chapel, strengthened my faith, and encouraged
me (in spite of the opposition of some narrow hearts) to go forwards
with it, till it is compleated. Surely the work is of God. Last Sunday
there was a wonderful stirring amongst the dry bones; some great
people came, and begged they might have a constant seat. An earnest
this, I believe, of more good things to come. To me, dear Madam, it is
the most promising work the Redeemer ever vouchsafed to employ me
in. Lord, what am I? Help me, glorious Emmanuel, to abhor myself in
dust and ashes! He will bless you, dear Madam, for what you have
done. O that I had a thousand lives to employ in his service! I am much
obliged to dear Mrs. B――. Neither she nor you will have reason to

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2. Variance is best defined as:

A. difference of opinion in expected returns.

4. Which investor attaches decreasing utility to each increment in wealth?

5. Which investor attaches equal utility to each increment in wealth?

8. Portfolio theory was initially developed by:

11. Which statement best describes the market portfolio?

A. Portfolio of all traded assets in the universe.

12. The capital market line:

A. describes the equilibrium risk-return relationship for efficient portfolios.

13. A security market line:

14. Examine the following probability distribution:

The expected value from this is:

The range and standard deviation of the distribution are:

A. $4000 and $1095.45, respectively.

16. Examine the following probability distribution:

The mean, range and standard deviation are:

A. 0.06, 0.10 and 0.0693, respectively.

A. investment distributions are not usually bell shaped.

A. Horizontal line above the x axis.

21. The benefit of diversification to an investor is the reduction of:

22. Which of the following statements is true?

23. Which of the following investments does a rational investor prefer?

A. Investment A: E(R) = 10%, = 3%

28. A risk-averse investor attaches:

A. increasing utility to each increment in wealth.

29. A risk-neutral investor attaches:

A. increasing utility to each increment in wealth.

A. increasing utility to each increment in wealth.

32. Risk aversion implies that:

33. Two important assumptions of portfolio theory are:

36. An ‘efficient' portfolio is one that:

A. combines assets whose returns are not perfectly correlated.

A. will increase the expected return of the portfolio.

38. The efficient frontier:

40. Systematic risk represents:

A. Changes in the level of interest rates.

43. Beta is a measure of the extent to which:

A. the returns on the stock market as a whole change over time.

A. E(R) = 0.152, σ = 0.161

A. security market line.

A. Consumer price index.

A. the best return from a high risk investment.

Has the portfolio:

A. underperformed relative to the benchmark.

Has the portfolio:

A. underperformed relative to the benchmark.

53. Which of the following is NOT a portfolio performance measure?

62. In order to benchmark the performance of a portfolio it is important to compare it to a portfolio of

72. Explain the difference between systematic and unsystematic risk.

Has the portfolio:

a. What is the expected return of ZIN?

2. Variance is best defined as:

A. difference of opinion in expected returns.

5. Which investor attaches equal utility to each increment in wealth?

8. Portfolio theory was initially developed by: